Thank you. I tweeted "technology driven darwinism is hitting...the traditional investment banking and brokerage industry" with link to your post.
gregorylent
· 1 year ago
it is the greatest thing that has happened to the american economy in years. amusing how it is spun, Crisis Exposes Flaws in US Economy, Tarnishes Image | Bloomberg, .... these dirtbags have known for years that they were rigging the system ... did they never have morality training at daddy's knee, no ethics training in school? ....
anybody who bases their life in greed and manipulation should have exactly this happen to them. crimes against society. they should be sent to farms for re-education ...
i feel sorry for none of them .... many should be jailed, sent to farms for re-education .... merrill's boss is still getting a 20 million dollar bonus ....
it is a rigged game, risk and reward have had no relation, and i am glad it is falling apart. in fact, i want more, much more, and it is going to happen. the only guys who don't know that are the ones pretending to patch it together. and still making their 6, 7 figures...
we need this chaos and destruction, because it is the only way a new system will be created.
Taylor Davidson
· 1 year ago
Well said Fred. It's difficult for most industries to accept the Darwinian cycle of construction and destruction, to accept that failure is a necessary by-product of success. The "financial collapse" creates great stories for any news outlet that has to create stories every day. While the industry unraveling should cause concerns, I have no concerns over any individual company going out of business.
The great thing that will come out of this is the releasing of the passion and intellect locked up, of all the conversations that smart, passionate people have had about addressing the faults and how they would "do it different." Now, without jobs and the same opportunities (i.e. not giving up a rich paycheck), the chance to fix it AND get paid will be too much of an incentive for the smart, passionate and committed to create new businesses founded on addressing the faults the collapse exposed.
I'm hoping the capital will be there to understand and back these new efforts, thinking of a new path rather than repeating down the path of the old.
Toffer Grant
· 1 year ago
I think this post sums it all up nicely. This is a boon for the tech industry as smart talent will make its way over to our side of the fence for jobs, with new ideas and generally continuing to lift NY's significance in the tech start up world. The biggest short term challenges for start ups will come from the loss of wealth that helps fund the early days of new enterprises. In NY we have Wall Street and Real Estate types who invest in start ups all the time. In CA at least many seed stage investors are tech community veterans who are presumably less affected by the bank crisis. What impact does all this have positive and negative on the flow and quality of new ideas, VC funding, or viability of new companies - does new talent coming in dilute what's already out there or does it shrink the pipeline? Every start up has its challenges, this is no easy thing, but did it just get more difficult for everyone long term? There is an underlying reality to the crisis that is rippling across the city and throughout the world.
Pascal-Emmanuel Gobry
· 1 year ago
Fantastic post. It's a very important thing to keep in mind that this is technology-driven change and not just a boom and bust cycle.
Very interesting to see that most people respond to this by urging increased regulation and oversight even though the crisis started with highly regulated investment banks and loosely regulated PE firms and hedge funds have been good.
We're truly witnessing the rise of a new kind of financial industry -- it's actually an exciting time.
egoboss
· 1 year ago
spot on, fred.
Igor
· 1 year ago
Great analysis. This is all very similar to what happened to .com companies in the early 2000's. Too much money, not enough actual business. And just like in .com bust, the part about the Foot Locker is spot on. This is exactly what happened to a lot of lower tear web developers from early 2000's. Hardly any of them are still in the tech business.
Chris Dodge
· 1 year ago
Igor,
Morgan Stanley just reported strong profits (although certainly down) and they too are being forced in a position to react through merger discussions. So, I think your analogy to dot-coms which were largely not profitable (some even without substancial revenue) is off here. Investment banks do indeed have a lot of business, it's more a liquidly crisis than a revenue crists.
- Chris
Quinn McHenry
· 1 year ago
While those displaced by this are unlikely to appreciate the analogy, I like your darwinistic spin on capitalism and the upbeat message of your post. I had a great discussion yesterday (the kind where lips moved instead of fingers, if you can believe it) the gist of which was "if a computer can do your job, you have a bad job." Not exactly in line with the financial services condition, but in both cases you should be able to feel the looming obsolescence of your job role. This has been a long time coming and, as you allude, is necessary for our society to survive in the long run.
Steven Kane
· 1 year ago
amen
(But, wait - just when I have you pegged as a closet liberal democrat, you flummox me with a post like this - maybe you are closet supply side republican? nah, anybody who takes the time to think and care and study ends up post-ideological, issue-driven, proud members of the Far Center)
fredwilson
· 1 year ago
labels are tough. i love mike bloomberg and i think barack obama will make a great president. what does that make me?
henryyates
· 1 year ago
New Labour (UK). The initial vision anyway...
Brian
· 1 year ago
A democrat.
Possibly in the New Democrat (Bill) Clinton mold. For some reason that has gone out of style. I have no idea why.
FromFlyoverCountry
· 1 year ago
You mean to tell me that this isn't all George W.'s fault?! ;)
All his big corporation cronies and millionaire tax cuts, and fat cats on Wall Street make a bundle while the little guy is screwed again?!
/Sarcasm
So while the country lags, investment lowers, and economic outlook decreases what should we do? Increase taxes on corporations and the wealthy (the ones who create wealth/jobs/innovation)? NO! Create a govn't funded healthcare bureaucracy? NO! Restrict trade and inflate prices for goods in America? NO! Restrict drilling and inflate the price at the pump? NO!
Here is the plan:
1) Eliminate the capital gains tax, once and for all 2) Reduce income tax across the board with a flat tax 3) Eliminate govnt agencies 4) Make trade free'er 5) Takeaway restictions for oil drilling and eliminate the de facto energy tax on all citizens 6) Finally, let the oil companies be oil companies. It is not their job to find alternative sources of energy. With the cost of energy as it is, there is plenty of incentive for more environmentally sustainable energy companies to develop.
Taking away disincentives to innovation will set off a surge of investment, new companies, new products, lower prices, more jobs, and on and on and on. If only Americans knew the facts, they might be more apt to discard the class warfare and "Rules For Radicals" playbook. Instead we hear, raise taxes on the wealthy because they make too much money and let's create MORE government. (Slightly puking in mouth).
FromFlyoverCountry
· 1 year ago
BTW, Joe Biden just made the socialist comment of the day:
By DOUGLASS K. DANIEL, Associated Press Writer 2 hours, 11 minutes ago
WASHINGTON - Democratic vice presidential candidate Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans.
---- Taking and redistributing wealth will do zero for our economy. Barack Obama has a plan for socialism, not success.
Johndmc
· 1 year ago
So Biden is sounding a lot like that well known socialist Warren Buffett
steveray
· 1 year ago
I agree that redistributing wealth will do nothing for the economy, but it's also a fact that de-regulation and corporate welfare have been redistributing wealth in the other direction at a pretty alarming rate. We've just witnessed a massive swindle by the wealthy and multinational corporations of the working class, who are left holding the bag. All indications are that under the current regime the rich have gotten richer and the middle class and poor are not participating. A large factor is that the government has allowed corporations and the wealthy that own their shares to push their risk onto the wage earner and consumer - in lots of ways not just by socializing losses as we've seen this week. I agree with NAFTA and free trade is a net positive, but there is no doubt that it has pushed risk from corporations to US wage earners. And risk=money straight out, you can buy and sell it on Wall St. (even today). These kinds of policies are a straight redistribution of wealth from the working middle class to the sophisticated wealthy.
Our democracy can not survive long term absent an equitable tax system. Its clear that the current system is NOT equitable. In that light Biden's comment makes perfect sense, and I agree with it. Luckily for America, we get to stage a revolution every four years.
What Democrats and Republicans should be debating is the most prudent way to readjust our distribution of wealth so everyone can participate, not allowing certain constituencies to make land grabs. ie. NAFTA = more corporate profits some of which get channeled into public education by the way of taxes. Enough TAXES=BAD rhetoric from the Republicans. Norway is looking pretty sweet about now (half kidding).
curmudgeonly troll
· 1 year ago
this should get some kind of award for retarded comment of the day
1) tax capital gains exactly the same as ordinary income. I've yet to hear an argument why capital gains is not income and the different treatment just creates games. (index capital gains for inflation since they take place over years)
2) eliminate income tax deductions and just have at most 3 marginal rates
5) tax each form of energy consumption in line with the generally accepted social costs of pollution, so that the cleanest forms are improved and the dirty forms are not subsidized
I would add - end corporate income tax, just tax the corporate distributions as ordinary income; end estate tax, but eliminate the cost-basis reset and treat it as ordinary income when it's realized
note to the retards: when you're winning the class war, no point in inflaming the opposition
fredwilson
· 1 year ago
why do you have to call someone a retard? some of your points are really good but you ruin it for me in that first line
curmudgeonly troll
· 1 year ago
well, it's never a good idea to comment while offended LOL.
there's a type of free market fetishist that thinks the market is always right... if the price of oil is too high it's because the guvmint is interfering with oil companies' right to pollute air and spoil land... I guess they must also think Webvan would have been the next Wal-Mart if not for guvmint intervention, since the market couldn't possibly misprice anything...
they're just as out of touch with reality as redistributionists and might as well start getting used to being treated like cranks.
financial markets have been in disarray for a year, half the financial industry is going out of business and Paulson and Bernanke are taking over the other half... and apparently markets are never wrong and we need to eliminate the capital gains tax... all you can do is laugh LOL
fredwilson
· 1 year ago
³it's never a good idea to comment while offended²
Never a truer word spoken curmudgeonly
I am going to print that out and put it right above my computer in my home office!
Michael Gracie
· 1 year ago
Fred - Technology replaced the retail broker. And now managed funds are replacing (or you could say, usurping) the returns held dear to the "buy and hold" crowd.
When people come to the realization that there is little return to buying and holding the S&P while funds gobble up the volatility, they won't participate any more. Managed funds (which unqualified investors can't participate in) will become the only source of capital for businesses, which sounds very inefficient.
howardlindzon
· 1 year ago
good stuff on this comment
kenberger
· 1 year ago
Just like: Video killed the radio star
michael
· 1 year ago
You people (Fred and most of the first 13 commenters) are a deluded lot to put it politely. You mistake pithy bullshit for knowledge and your blind faith in a few words (technology, markets, Darwinian, cyclical) replaces any need to actually understand what is going on. Amazing that you all appear to be deriving comfort from this brief nonsensical circle jerk. I've got a new band name for you lot: Right Said Fred and the Sycophants.
Good night and good luck,
A Foot Locker Employee
kidmercury
· 1 year ago
i'm just saying this to warn people, there is obviously no incentive (aside from karma).
we are in a financial crisis. this is great depression 2.0. the federal reserve is responsible, just as they were responsible for great depression 1.0 -- even bernanke admits this.
every bailout you see, everytime the fed injects more money into the market (they just did it again today), the more dollar devaluation and ensuing hyperinflation becomes inevitable. how far off is the only question.
the situation is even worse when one considers the geopolitical scenario, and that disastrous foreign policy that is destructive to the economy and further devalues the US dollar will continue whether mccain or obama is installed.
to protect yourself, consider
1. moving to a foreign country (seriously) 2. buying gold, silver, palladium, precious metals in general. trade the spot market and even take a few deliverables. foreign currencies as well, particularly euro and asian currencies. oil as well. 3. stock up on hard assets. storable food. 4. firearms.
if you are wealthy enough all four options are viable. if not #3 and #2 may be your best bet, that is certainly what i have done. efoodsdirect.com to get storable food, cheaper and healthier than the crap you buy at grocery stores.
this is not a joke, any serious economist knows the dollar is pretty much destined to plummet at this point, which will result in an inflationary depression. s&p tanked yesterday and gold shot up -- if you priced the s&p in gold you'd get an idea of how much the s&p really dropped.
look at history, a fiat currency, central bank, and imperial foreign policy inevitably results in hyperinflation.
again just saying this to warn you, and because we are never going to fix this problem until we deal the reality of it.
Chris Dodge
· 1 year ago
Not trying to be overly sensitive - and I'm sure Andy meant to be ironic, but I have to take exception to the perception that savers are really just "stupid" and "lazy".
A *huge* problem, in my opinion, is that the savings rate of Americans has widdled over the year to basically 0. I think for a momemnt it went under 0. Consider that the saving rate was in the 20% rage back in the 40's, (source http://bigpicture.typepad.com/comments/2005/08/...)
In generally there's a micro/macro economic mirroring happening here: people and (some) corporations are relying too much on debt to finance their (desired) lifestyles [for people]/operations [for businesses].
It doesn't help to imply that people who keep cash in the bank (wow! what a concept!!) as being "lazy and stupid" because they don't seek higher returns in the marketplace. Ironically, for the last 12 months money in the bank would be the best and more wise investment.
togilvie
· 1 year ago
1) Technology "caused" the bust. We created new derivatives and CMOs/CDOs, then marketed them in an oversimplified fashion that masked their risks. (Not dissimilar from when the 2001 bust showed many tech companies to have fundamentally flawed models)
2) The question isn't whether we're going to march forward with technological darwinism, but whether we would be moving forward FASTER without the boom/bust cycle. Capital allocation gets horribly out of whack, we introduce new legislation like Sarbanes Oxley that's a day-late/dollar short, etc. Peter Thiel had some interesting thoughts here at TechCrunch50.
3) The final story isn't written on hedge funds and PE firms. Much like CMOs/CDOs, there's a ton of value creation here through new "technology", but they also gloss over risks that juice their returns. (i.e. the use of leverage, derivatives, and the fact that there are so many players using the same techniques may ultimately drive the same type of rush for the exits that we've seen in the markets)
turph
· 1 year ago
Don't forget that the first leg of these firms that technology crushed long ago was the research groups. The writting was on the wall then and should have given a clear indication of where things are heading.
basil
· 1 year ago
The problem is that Footlocker probably isn't hiring, and neither is Starbucks. The "bottom tier" are people who pay rent, mortgages, and taxes, have families, and generally allow the "top tier" to float to the top by providing economic buoyancy. Dismissing them because they don't make as much money is short sighted- there are considerably more of them than there are of Mr. Kessler.
As for calling people with checking accounts "stupid", I can only say that being lucky and smart enough to have the luxury of not having to worry about the mundane details of the small portion of your personal money that you can actually spend would not be possible if there's weren't people out there for Mr. Kessler to make money from.
RacerRick
· 1 year ago
I do not feel sorry for my ibank weinie friends who have pulled million dollar xmas bonuses for years. It's about time they had a correction.
druce
· 1 year ago
The problem is
- the banks are levered 30:1, a 4% loss wipes them out - their financial statements are incomprehensible - management claims of liquidity/profitability are not credible
the country has been consuming more than it produces for a long time simply because it can print dollars and the rest of the world inexplicably still wants them. once everybody gets wise there will be hell to pay. if we were a Latin American country it would have happened a long time ago and people like Paulson, Rubin and Summers would have been leading the charge for 'market-based readjustment'.
matt oesterle
· 1 year ago
excellent post. my favorite so far on this topic.
i'd be interested to learn more about your thoughts on something you hint at: "that's why we need to be careful with all of this bailout activity." some might go way out in left (well, technically right) field and suggest that bailouts, no matter how necessary they seem, are always creating long-term inefficiencies. the same people that might argue to get rid of the fed and government intervention in the financial markets entirely. i'm somewhat sympathetic to this angle, at least from an academic standpoint.
however, when it comes to reality, few people wanted to see fannie mae / freddie mac go under. and in a similarly extreme example, the LTCM fiasco back in the day. at the expense of being too general, where would you personally draw the line, if one can be drawn?
thanks fred
Don Jones - VentureDeal
· 1 year ago
And now there's news about a possible RTC - gee, we're all paying for the excesses of the "banks", while their management got great bonuses during the big boom. Hope they're happy with all that money.
gregorylent
· 1 year ago
yes, it really worked with chrysler, the whole industry progressed ... not. aren't they asking for more billions lately? in some countries the leaders express shame publicly. wish we were one of them.
DorianBenkoil
· 1 year ago
I'm reminded of the Eddie Murphy, Dan Ackroyd movie (Trading Places?) when Murphy, down-and-out guy, gets wind of how it works for Wall Street brokers and traders, and has an epiphany: You guys are just like bookies, collecting money off both ends! he exclaims.
And, as you point out, here, Fred, technology is obviating the need for that kind of middleman.
MassMan
· 1 year ago
A few comments:
The problem we are facing is fourfold:
- Solvency: Despite a growing economy (if you believe the government statistics), people and institutions cannot service their debt. It started with the lowest quality loans (aka the conjoined twins of sub-prime loans securitized into CDOs) but has quickly spread to other higher grade classes of debt. Solvency obviously plays a huge roll in asset bubbles. Once that disappears the bubble collapses upon itself.
- Confidence: Nobody knows who has what or who is dependent whom to make good on their respective obligations. Once you lose confidence in your counter-parties, the system breaks down. Trades don't clear and any level. Why risk your career (or what's left of a career) for a few hundred extra basis points? Ask the former traders on the Bear repo desk.
- Transparency (or lack there of): The various financial products have become so complex and so opaque that they have become impossible to value, even in the best of times. The firms themselves are impossible to value because their financial documents don't mean anything (or they mean whatever the firms want them to mean).
- Complexity: The system has become hyper-complex. Nobody really understands what's going on or what might happen if certain policies are implemented. We are flying by the seat of our collective pants.
Should we care? You bet. Unlike the 70s, 80s or even the 90s, what happens on Wall St. matters...a lot. Compare the collapse of Drexel to Bear Sterns. When Drexel failed it was news but business went on as usual. When the Bear started to collapse the system buckled. In essence, we've built a financial system with numerous single points of failure in it. Never a good idea (ask any engineer) but that's what we have and that's what we have to deal with.
Consolidating brokerages into large commercial banks will only make things worse. There will be less transparency and the institutions will only get more and more complex. It's the opposite of what you really want to happen. In fact, removing Glass-Steagall was a huge mistake.
Depending on Hedge Funds is also a another mistake. They are levered players that actually depend on the investment banks for loans to lever up their trades. Worse yet, they operate in world with almost no regulation and very little transparency.
What we really need is a return to sound financial regulation. Markets need a central clearing exchange that are completely open where all the participants are subject to intense scrutiny.
- The MassMan
fredwilson
· 1 year ago
This makes a lot of sense to me. This post was called ³trying to make sense of the brokerage bust² and you've contributed to that. Thanks.
Ethan Bauley
· 1 year ago
Killer comment
Fred, for the non-NYC crowd, will you keep an eye on any new companies/ideas that come out of this and keep us posted? Who else will be covering this? Roger @ Info Arbitrage?
In a way, itall kind of makes me wish I had stayed in finance...there are hundreds of new businesses that can [will] spawn, I wish I had the insight to do something with it ;-)
Jonathan
· 1 year ago
The comments from MassMan are excellent However I don't agree with the idea that consolidating brokerages into commercial banks will make matters worse. The stability of funding that comes from a commercial bank is very important. Over-reliance of wholesale funding killed Drexel, Bear, and Lehman. The current crisis (which differs from the one in Summer 07) is a result of the de-leveraging happening too fast, itself a result of the difficulty of the broker/dealers have in getting liquidity. The Fed has tried to help with the PDCF (basically a discount window for broker/dealers) but the stigma attached prevents anyone from using it (outstandings as reported on the Fed H.4.1 have been zero. Not even Bear or Lehman used it when they could).
Broker/dealer funding is pretty simple. Securities Lenders, who act as custodians for big funds, lend out, as agent, bonds to dealers who are short, taking in cash as collateral. They take the cash and lend it to dealers in exchange for a lien on the dealers long positions. When the Sec Lenders' custody clients don't like taking risk to the broker dealers, they tell the Sec Lenders to stop lending the paper out, which means they (Sec Lenders) don't have the cash to recycle, Dealers have a really hard time covering short positions and funding themselves. That constrains the amount of credit to the hedge funds, among others. Commercial banks at least have a stable funding base to cover the cash needs. This is why, I think, the independent broker/dealer model is dead.
mpstaton
· 1 year ago
this is the best post by far. thank you for being insightful and not, um, indoctrinated.
tetsuotrees
· 1 year ago
Fantastic post.
kip
· 1 year ago
Great post. This is LTCM 2.0. When genius failed showed what would happen back in the late 90's. The policies of Hank and co. are so scarily protectionist. I'm afraid of what kind of mess they are going to leave. Any attempts to change policy now is only going to add an accelerator to the fire.
John
· 1 year ago
Just checked the market cap of Foot Locker. At $2.6B it seems like it's more valuable than some of the 'sexier' companies out there!
Jason
· 1 year ago
Hedge funds redefine the investment practise?
gravedigger
· 1 year ago
Ever-increasing parasitism is called "technology driven darwinism." The deluded people on this thread really believe that what happens at the casino on Wall Street is about talent and creativity. I guess some would say that there is an art to stealing the lives and labors of people here and around the world. And to add insult to injury, let those same people pay to bail you out so you can do it all over again.
stone
· 1 year ago
Wall Street has been disgraced again. This time I hope American's don't let them off the hook for being the greediest and most unethical among us. Anyone that knows the truth about Wall Street needs to stand up this time and resist a bailout that allows a person on Wall Street to make hundreds of millions for pushing other people's money around.
Now that Wall Street barely exists and many of the firms have been wiped out it's time for the congress to get tough and finally put the screws to these creeps. I'm sick and tired of my tax dollars going to bail out such a repulsive industry.
Engago team
· 1 year ago
After the Credit Crunch the TechCrunch? Start-ups and grownup companies will not get money from VC's or bankers, but need to have paying customers.
Still the trend is clear: The Internet will be the place to trade. Compare the costs of a transaction in a financial institution: - Face to face at the counter: $10 to $15 - ATM: $1 - Online: $.10 to $.15 Companies will need to generate leads online and nurture their prospects and customers online. The digital divide will only become bigger.
PV
· 1 year ago
I think people are going to be very startled when the NegAM ARMs start defaulting in early 2009. If you think Subprime mortgages were a mess, you haven't seen anything yet.
I just don't think continually printing money is the answer, and this new RTF, basically a CDO^3 is just a band-aid on a gun-shot wound. I'm pretty freaked out over the whole thing.
I have the feeling the government is really doing this bail-out to keep the CDS market underwraps (how can you even fathom 72 trillion dollars!). I think a new federal clearing house as one poster commented above is really probably the best option. Yikes in general.
zachlandes
· 1 year ago
Very interesting post, Fred. I agree with you re: investment banks. What I would be interested to know is how the shake up is affecting M&A firms. Has technology changed the game there as well?
slowblogger
· 1 year ago
Good post. One industry I want to see being innovated, which means the current model should be destroyed, is investment banking. The retail brokerage has changed and the human brokers lost.
But there are still corporate investment banking business that has not changed yet. I think there were some attempts before the Internet bubble, but they failed. But now seems the time for another round of attack. Anyone working on IB 2.0?
All Comments
anybody who bases their life in greed and manipulation should have exactly this happen to them. crimes against society. they should be sent to farms for re-education ...
i feel sorry for none of them .... many should be jailed, sent to farms for re-education .... merrill's boss is still getting a 20 million dollar bonus ....
it is a rigged game, risk and reward have had no relation, and i am glad it is falling apart. in fact, i want more, much more, and it is going to happen. the only guys who don't know that are the ones pretending to patch it together. and still making their 6, 7 figures...
we need this chaos and destruction, because it is the only way a new system will be created.
The great thing that will come out of this is the releasing of the passion and intellect locked up, of all the conversations that smart, passionate people have had about addressing the faults and how they would "do it different." Now, without jobs and the same opportunities (i.e. not giving up a rich paycheck), the chance to fix it AND get paid will be too much of an incentive for the smart, passionate and committed to create new businesses founded on addressing the faults the collapse exposed.
I'm hoping the capital will be there to understand and back these new efforts, thinking of a new path rather than repeating down the path of the old.
Very interesting to see that most people respond to this by urging increased regulation and oversight even though the crisis started with highly regulated investment banks and loosely regulated PE firms and hedge funds have been good.
We're truly witnessing the rise of a new kind of financial industry -- it's actually an exciting time.
Morgan Stanley just reported strong profits (although certainly down) and they too are being forced in a position to react through merger discussions. So, I think your analogy to dot-coms which were largely not profitable (some even without substancial revenue) is off here. Investment banks do indeed have a lot of business, it's more a liquidly crisis than a revenue crists.
- Chris
(But, wait - just when I have you pegged as a closet liberal democrat, you flummox me with a post like this - maybe you are closet supply side republican? nah, anybody who takes the time to think and care and study ends up post-ideological, issue-driven, proud members of the Far Center)
Possibly in the New Democrat (Bill) Clinton mold. For some reason that has gone out of style. I have no idea why.
All his big corporation cronies and millionaire tax cuts, and fat cats on Wall Street make a bundle while the little guy is screwed again?!
/Sarcasm
So while the country lags, investment lowers, and economic outlook decreases what should we do? Increase taxes on corporations and the wealthy (the ones who create wealth/jobs/innovation)? NO! Create a govn't funded healthcare bureaucracy? NO! Restrict trade and inflate prices for goods in America? NO! Restrict drilling and inflate the price at the pump? NO!
Here is the plan:
1) Eliminate the capital gains tax, once and for all
2) Reduce income tax across the board with a flat tax
3) Eliminate govnt agencies
4) Make trade free'er
5) Takeaway restictions for oil drilling and eliminate the de facto energy tax on all citizens
6) Finally, let the oil companies be oil companies. It is not their job to find alternative sources of energy. With the cost of energy as it is, there is plenty of incentive for more environmentally sustainable energy companies to develop.
Taking away disincentives to innovation will set off a surge of investment, new companies, new products, lower prices, more jobs, and on and on and on. If only Americans knew the facts, they might be more apt to discard the class warfare and "Rules For Radicals" playbook. Instead we hear, raise taxes on the wealthy because they make too much money and let's create MORE government. (Slightly puking in mouth).
By DOUGLASS K. DANIEL, Associated Press Writer 2 hours, 11 minutes ago
WASHINGTON - Democratic vice presidential candidate Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans.
----
Taking and redistributing wealth will do zero for our economy. Barack Obama has a plan for socialism, not success.
Our democracy can not survive long term absent an equitable tax system. Its clear that the current system is NOT equitable. In that light Biden's comment makes perfect sense, and I agree with it. Luckily for America, we get to stage a revolution every four years.
What Democrats and Republicans should be debating is the most prudent way to readjust our distribution of wealth so everyone can participate, not allowing certain constituencies to make land grabs. ie. NAFTA = more corporate profits some of which get channeled into public education by the way of taxes. Enough TAXES=BAD rhetoric from the Republicans. Norway is looking pretty sweet about now (half kidding).
1) tax capital gains exactly the same as ordinary income. I've yet to hear an argument why capital gains is not income and the different treatment just creates games. (index capital gains for inflation since they take place over years)
2) eliminate income tax deductions and just have at most 3 marginal rates
5) tax each form of energy consumption in line with the generally accepted social costs of pollution, so that the cleanest forms are improved and the dirty forms are not subsidized
I would add - end corporate income tax, just tax the corporate distributions as ordinary income; end estate tax, but eliminate the cost-basis reset and treat it as ordinary income when it's realized
note to the retards: when you're winning the class war, no point in inflaming the opposition
there's a type of free market fetishist that thinks the market is always right... if the price of oil is too high it's because the guvmint is interfering with oil companies' right to pollute air and spoil land... I guess they must also think Webvan would have been the next Wal-Mart if not for guvmint intervention, since the market couldn't possibly misprice anything...
they're just as out of touch with reality as redistributionists and might as well start getting used to being treated like cranks.
financial markets have been in disarray for a year, half the financial industry is going out of business and Paulson and Bernanke are taking over the other half... and apparently markets are never wrong and we need to eliminate the capital gains tax... all you can do is laugh LOL
Never a truer word spoken curmudgeonly
I am going to print that out and put it right above my computer in my home
office!
When people come to the realization that there is little return to buying and holding the S&P while funds gobble up the volatility, they won't participate any more. Managed funds (which unqualified investors can't participate in) will become the only source of capital for businesses, which sounds very inefficient.
Video killed the radio star
Good night and good luck,
A Foot Locker Employee
we are in a financial crisis. this is great depression 2.0. the federal reserve is responsible, just as they were responsible for great depression 1.0 -- even bernanke admits this.
every bailout you see, everytime the fed injects more money into the market (they just did it again today), the more dollar devaluation and ensuing hyperinflation becomes inevitable. how far off is the only question.
the situation is even worse when one considers the geopolitical scenario, and that disastrous foreign policy that is destructive to the economy and further devalues the US dollar will continue whether mccain or obama is installed.
to protect yourself, consider
1. moving to a foreign country (seriously)
2. buying gold, silver, palladium, precious metals in general. trade the spot market and even take a few deliverables. foreign currencies as well, particularly euro and asian currencies. oil as well.
3. stock up on hard assets. storable food.
4. firearms.
if you are wealthy enough all four options are viable. if not #3 and #2 may be your best bet, that is certainly what i have done. efoodsdirect.com to get storable food, cheaper and healthier than the crap you buy at grocery stores.
this is not a joke, any serious economist knows the dollar is pretty much destined to plummet at this point, which will result in an inflationary depression. s&p tanked yesterday and gold shot up -- if you priced the s&p in gold you'd get an idea of how much the s&p really dropped.
look at history, a fiat currency, central bank, and imperial foreign policy inevitably results in hyperinflation.
again just saying this to warn you, and because we are never going to fix this problem until we deal the reality of it.
A *huge* problem, in my opinion, is that the savings rate of Americans has widdled over the year to basically 0. I think for a momemnt it went under 0. Consider that the saving rate was in the 20% rage back in the 40's, (source http://bigpicture.typepad.com/comments/2005/08/...)
In generally there's a micro/macro economic mirroring happening here: people and (some) corporations are relying too much on debt to finance their (desired) lifestyles [for people]/operations [for businesses].
It doesn't help to imply that people who keep cash in the bank (wow! what a concept!!) as being "lazy and stupid" because they don't seek higher returns in the marketplace. Ironically, for the last 12 months money in the bank would be the best and more wise investment.
2) The question isn't whether we're going to march forward with technological darwinism, but whether we would be moving forward FASTER without the boom/bust cycle. Capital allocation gets horribly out of whack, we introduce new legislation like Sarbanes Oxley that's a day-late/dollar short, etc. Peter Thiel had some interesting thoughts here at TechCrunch50.
3) The final story isn't written on hedge funds and PE firms. Much like CMOs/CDOs, there's a ton of value creation here through new "technology", but they also gloss over risks that juice their returns. (i.e. the use of leverage, derivatives, and the fact that there are so many players using the same techniques may ultimately drive the same type of rush for the exits that we've seen in the markets)
As for calling people with checking accounts "stupid", I can only say that being lucky and smart enough to have the luxury of not having to worry about the mundane details of the small portion of your personal money that you can actually spend would not be possible if there's weren't people out there for Mr. Kessler to make money from.
- the banks are levered 30:1, a 4% loss wipes them out
- their financial statements are incomprehensible
- management claims of liquidity/profitability are not credible
the country has been consuming more than it produces for a long time simply because it can print dollars and the rest of the world inexplicably still wants them. once everybody gets wise there will be hell to pay. if we were a Latin American country it would have happened a long time ago and people like Paulson, Rubin and Summers would have been leading the charge for 'market-based readjustment'.
i'd be interested to learn more about your thoughts on something you hint at: "that's why we need to be careful with all of this bailout activity." some might go way out in left (well, technically right) field and suggest that bailouts, no matter how necessary they seem, are always creating long-term inefficiencies. the same people that might argue to get rid of the fed and government intervention in the financial markets entirely. i'm somewhat sympathetic to this angle, at least from an academic standpoint.
however, when it comes to reality, few people wanted to see fannie mae / freddie mac go under. and in a similarly extreme example, the LTCM fiasco back in the day. at the expense of being too general, where would you personally draw the line, if one can be drawn?
thanks fred
And, as you point out, here, Fred, technology is obviating the need for that kind of middleman.
The problem we are facing is fourfold:
- Solvency: Despite a growing economy (if you believe the government statistics), people and institutions cannot service their debt. It started with the lowest quality loans (aka the conjoined twins of sub-prime loans securitized into CDOs) but has quickly spread to other higher grade classes of debt. Solvency obviously plays a huge roll in asset bubbles. Once that disappears the bubble collapses upon itself.
- Confidence: Nobody knows who has what or who is dependent whom to make good on their respective obligations. Once you lose confidence in your counter-parties, the system breaks down. Trades don't clear and any level. Why risk your career (or what's left of a career) for a few hundred extra basis points? Ask the former traders on the Bear repo desk.
- Transparency (or lack there of): The various financial products have become so complex and so opaque that they have become impossible to value, even in the best of times. The firms themselves are impossible to value because their financial documents don't mean anything (or they mean whatever the firms want them to mean).
- Complexity: The system has become hyper-complex. Nobody really understands what's going on or what might happen if certain policies are implemented. We are flying by the seat of our collective pants.
Should we care? You bet. Unlike the 70s, 80s or even the 90s, what happens on Wall St. matters...a lot. Compare the collapse of Drexel to Bear Sterns. When Drexel failed it was news but business went on as usual. When the Bear started to collapse the system buckled. In essence, we've built a financial system with numerous single points of failure in it. Never a good idea (ask any engineer) but that's what we have and that's what we have to deal with.
Consolidating brokerages into large commercial banks will only make things worse. There will be less transparency and the institutions will only get more and more complex. It's the opposite of what you really want to happen. In fact, removing Glass-Steagall was a huge mistake.
Depending on Hedge Funds is also a another mistake. They are levered players that actually depend on the investment banks for loans to lever up their trades. Worse yet, they operate in world with almost no regulation and very little transparency.
What we really need is a return to sound financial regulation. Markets need a central clearing exchange that are completely open where all the participants are subject to intense scrutiny.
- The MassMan
of the brokerage bust² and you've contributed to that. Thanks.
Fred, for the non-NYC crowd, will you keep an eye on any new companies/ideas that come out of this and keep us posted? Who else will be covering this? Roger @ Info Arbitrage?
In a way, itall kind of makes me wish I had stayed in finance...there are hundreds of new businesses that can [will] spawn, I wish I had the insight to do something with it ;-)
Broker/dealer funding is pretty simple. Securities Lenders, who act as custodians for big funds, lend out, as agent, bonds to dealers who are short, taking in cash as collateral. They take the cash and lend it to dealers in exchange for a lien on the dealers long positions. When the Sec Lenders' custody clients don't like taking risk to the broker dealers, they tell the Sec Lenders to stop lending the paper out, which means they (Sec Lenders) don't have the cash to recycle, Dealers have a really hard time covering short positions and funding themselves. That constrains the amount of credit to the hedge funds, among others. Commercial banks at least have a stable funding base to cover the cash needs. This is why, I think, the independent broker/dealer model is dead.
Now that Wall Street barely exists and many of the firms have been wiped out it's time for the congress to get tough and finally put the screws to these creeps. I'm sick and tired of my tax dollars going to bail out such a repulsive industry.
Start-ups and grownup companies will not get money from VC's or bankers, but need to have paying customers.
Still the trend is clear: The Internet will be the place to trade.
Compare the costs of a transaction in a financial institution:
- Face to face at the counter: $10 to $15
- ATM: $1
- Online: $.10 to $.15
Companies will need to generate leads online and nurture their prospects and customers online.
The digital divide will only become bigger.
I just don't think continually printing money is the answer, and this new RTF, basically a CDO^3 is just a band-aid on a gun-shot wound. I'm pretty freaked out over the whole thing.
I have the feeling the government is really doing this bail-out to keep the CDS market underwraps (how can you even fathom 72 trillion dollars!). I think a new federal clearing house as one poster commented above is really probably the best option. Yikes in general.
But there are still corporate investment banking business that has not changed yet. I think there were some attempts before the Internet bubble, but they failed. But now seems the time for another round of attack. Anyone working on IB 2.0?